The U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD)—the arm of the DOL responsible for enforcing the FLSA—has announced a major policy shift related to liquidated damages in pre-litigation settlements following DOL investigations. As a result of this change, state and local government employers will likely be able to avoid any liquidated damages in the event a DOL investigation finds FLSA violations. This announcement is the latest in a series of employer friendly initiatives promoted by the DOL as a means to achieve a speedy economic recovery following the coronavirus pandemic.
The WHD regularly conducts investigations seeking to promote compliance with a large variety of federal laws related to basic labor standards. Included within these basic federal laws is the FLSA. Typically, the WHD will conduct an investigation after receiving a complaint from a current or former worker. Following this complaint, the WHD initiates a formal investigation of the employer’s pay practices. In the event an investigator discovers violations of the FLSA the WHD is authorized to broker administrative settlements with the employer, or in the event a settlement cannot be reached, file a lawsuit in federal court on the workers behalf. The vast majority of WHD investigations—where violations are found—result in administrative settlements between the employer and employees.
Since 2011, the DOL had a standard policy of requiring employers pay full liquidated damages to employees in all pre-litigation administrative settlements. Liquidated damages are typically equal to the amount of back wages owed. For example, if a fire department was found to have violated the FLSA and as a result, shorted twelve of its firefighters a total of $12,000 in overtime wages; the DOL would insist that any settlement include $12,000 in back wages and another $12,000 in liquidated damages paid to the twelve firefighters. In the end, this $12,000 error would cost the fire department at least $24,000 to resolve.
Effective July 1, 2020 the DOL’s WHD has reversed course regarding the inclusion of liquidated damages in pre-litigation administrative settlements absent extenuating circumstances. The WHD may still seek pre-litigation liquidated damages in some cases [if the employer has a history of FLSA violations and/or willful violations], however the inclusion of liquidated damages in pre-litigation settlements will now serve as the exception and not the general rule. In fact, approval from either the WHD Administrator or the Solicitor of Labor is required if a local WHD office wishes to seek liquidated damages following a wage and hour investigation.
What this means for you will depend on which side of the table that you sit. From the employer’s standpoint this policy shift represents a huge break. Very often the WHD will limit their look-back for investigation purposes to the previous 2 years, in lieu of the maximum of 3 years. This factor alone can save the employer significant sums of money. Now, if you couple the exclusion of liquidated damages with the shorter than average look-back period, the employer will save even more money.
This new policy shift also presents an unusual opportunity for public employers to settle FLSA violations quickly and economically. These are two words rarely used to describe wage and hour violations. This is especially important in today’s uncertain economic times given public budgeting trends.
From an employee’s perspective this is a huge set-back. Many employees, especially low-wage workers, do not have the resources and/or the ability to obtain qualified legal counsel to pursue FLSA violations on their own. The DOL serves a crucial role for these workers. Plus, the inclusion of liquidated damages historically formed the basis for ensuring employer compliance. One could argue that employers now have little or no incentive to “get-it-right” the first time. As a close friend and colleague of mine, who is also a very well-respected FLSA attorney, recently wrote: “This makes it profitable to steal wages from your employees. You only need to pay IF you get caught within 2 years and then can negotiate the portion of what you stole that you must pay back.”
Coincidently, if employees pursue their FLSA claims either individually, or as a group in court, liquidated damages will still be the norm in the event a violation is found. Additionally, most if not all plaintiff’s attorneys will push for the full three-year look-back [in rare circumstances even longer], in addition to receiving attorneys’ fees and costs if a violation is proven. Very often the attorneys’ fees can dwarf the actual back wages award. I cannot help but think that more sophisticated employee’s will dismiss pursuing their claims through the DOL and move straight to a civil suit. All the while less than sophisticated employee’s will look for the DOL to investigate and pursue their claims and theoretically receive a very different result. Only time will tell.
This will be one of many topics discussed in depth at both of our upcoming FLSA for Fire Departments live webinars. If you have questions about how the FLSA impacts firefighters and other emergency service workers, please consider joining us. We are less than a month away from our next class which will run from September 15-18, 2020. Click here for more information.
Also, time is running out to save $100 on the November class, which runs from November 10-13, 2020. Register before September 1, 2020 to save $100. Click here for more information.
Here is the official press release from the DOL’s WHD.